Half of Apple's iPhone 3Gs sold internationally

Two separate disclosures by Apple and AT&T last week combine to revealed that the iPhone, once driven largely by domestic sales, has grown into a big international business with the arrival of the 3G model.

In fact, close to one half -- if not more -- of the iPhone 3Gs sold between the handset's launch on July 11th and the end of Apple's September quarter were purchased internationally.

As part of its fiscal fourth quarter earnings report last Tuesday, the first quarter in which the iPhone 3G was available, Apple said it shipped 6,892,000 of the devices.

During an ensuing conference call, company chief operating officer Tim Cook addressed an inventory related question in which he noted that Apple was shipping to carriers in 51 countries by the end of the quarter, which combine for over 30,000 iPhone distribution points.

"To be precise, at the end of the quarter, I can tell you that we had about 2 million iPhones in total channel inventory across all of the 51 countries and we feel that these inventory [levels are] about right," he said.

That means that while Apple shipped nearly 6,892,000 million units, its sell-through was approximately 2 million shy of that figure, or 4,892,000 iPhones. The rest, as explained by Cook, were still on store shelves or in warehouses at the time of the financial call. Apple considers all shipped iPhones as sold.

The final piece of the puzzle arrived a day later when AT&T released its fiscal third quarter earnings, which it said were driven by 2.4 million domestic iPhone 3G activations.

Unlike with the original iPhone, Apple and AT&T now require all iPhones sold stateside to be activated -- or tied to an account -- at the point of sale to prevent unlocked exports, meaning the number of activations reported by the wireless carrier should correlate precisely to the number of sales.

Therefore, 4,892,000 iPhones sold, minus 2.4 million sold domestically, equates to 2,492,000, or more than half purchased internationally.

And if you listen to the first 30 seconds of the conference call --- they always say that you should rely on the SEC filing for accuracy.

And the SEC filing is about "shipment", not units sold.

" The Company sold 11,052,000 iPods during the quarter, representing eight percent unit growth and three percent revenue growth over the year-ago quarter. Quarterly iPhone units sold were 6,892,000 compared to 1,119,000 in the year-ago-quarter."

And if you listen to the first 30 seconds of the conference call --- they always say that you should rely on the SEC filing for accuracy.

And the SEC filing is about "shipment", not units sold.

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That's true. In the case it makes no difference. Sold = Shipped. Goods are considered sold when they leave the distribution for transit to retail partners. Thus, whether or not, AT&T has sold the units shipped, Apple has. Sold to AT&T. It's on them now. Units at Apple stores don't count as a sale until the device walks out with a consumer.

International sales are even higher. There are 2200 AT&T POS, a ~1000 BBY, and ~200 Apple outlets in US. That leaves more than 26,000 POS abroad.

BBY stores carry 100 units, AT&T probably around 50. and Apple stores a couple hundred. Maybe a quarter million in US channel. Apple uses a fulfillment center in Memphis in conjunction with FedEX which allows restocking on a daily basis, if needed. so when a store closes for the night, inventory orders go out and new stock arrives early the next morning. Across the pod, I doubt it's that easy. Locations there will carry high inventory levels due to the economics of time & costs to reorder more frequently.

Rogers in Canada sold 250K, and it was looking initially they might not sell one iPhone, due to the stir before the iPhone launched Considering Rogers only has 6-7 subscribers, that's a good number

There are several steps Apple could do to increase sales without cutting prices:
1. As component prices come down, the company could add value and keep the margin, cost and price structure the same. Adding more memory as prices collapse with this recession... 32GB would be OK with me; increase the resolution of the camera and may be add LED flash
2. Improve GPS to make is as good as Garmin... that would add huge value.
3. Add TV and other features like electronic payment that are popular in international market.
4. Sell unlocked units at the market price in places like Hong Kong, China, etc. This will open a huge market to people would do not want to be tied to plan and like to change the SIM card avoid hi roaming fees.
5. Given the economies of scale, the company could come up with a CDMA phone for the Chinese, Japanese, Korean and even the US market once ATT contract expires. Apple needs to be transmission technology agnostic. Verizon has a huge CDMA customer base... a lot of biz customers.

And Apple's definition of "sold" is shipment to carriers (ie. anything other than apple own store).

It's in the "UNAUDITED RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS" chart, go to the footnotes and Apple recognizes revenue when iphones are "shipped".

Ok. Let me see if I understand it correctly. You say that when a phone is shipped to a carrier and not to the Apple retail store it is actually not sold, and the Apple is not making money until some future date?

Ok. Let me see if I understand it correctly. You say that when a phone is shipped to a carrier and not to the Apple retail store it is actually not sold, and the Apple is not making money until some future date?

It is easy to understand --- when Apple ships iphones to the carriers, the carriers immediately pay Apple the full amount.

So in the SEC filings --- when Apple ships the iphone to the carriers, Apple immediately recognize the revenue (either over the 2 years under GAAP or the full amount under non-GAAP) --- regardless of whether the carriers have sold the iphones to the end users or not.

Therefore it doesn't matter whether Apple uses the word "shipment" or "sold" in the opening paragraphs of the press release (which is what you quoted, the press release portion of the SEC filing) --- it means the same thing.

"Sold" in the press release = "Shipment" in the SEC filing. Press releases always hype the numbers and then the fine print in the footnotes of the SEC filing tells you the most accurate picture.

Ok. Let me see if I understand it correctly. You say that when a phone is shipped to a carrier and not to the Apple retail store it is actually not sold, and the Apple is not making money until some future date?

The opposite. Units are considered sold when it's shipped to a carrier. Yet, sales at Apple stores aren't recognized until the end-user purchases it.

It works just how you would think. Apple sells directly to end-users and to 3rd-parties. In both cases, Apple gets rid of iPhones to somebody. Thus, it's a sale.

...International sales are even higher. There are 2200 AT&T POS, a ~1000 BBY, and ~200 Apple outlets in US. That leaves more than 26,000 POS abroad...

BBY stores carry 100 units, AT&T probably around 50. and Apple stores a couple hundred. Maybe a quarter million in US channel. Apple uses a fulfillment center in Memphis in conjunction with FedEX which allows restocking on a daily basis, if needed. so when a store closes for the night, inventory orders go out and new stock arrives early the next morning. Across the pod, I doubt it's that easy. Locations there will carry high inventory levels due to the economics of time & costs to reorder more frequently.

Rogers in Canada sold 250K, and it was looking initially they might not sell one iPhone, due to the stir before the iPhone launched Considering Rogers only has 6-7 subscribers, that's a good number

It is interesting to note that North America has had a very good fulfilment rate of iPhone 3G demand. Apple could have sold truckloads (well, containerloads) more iPhone 3Gs if they were able to meet international demand. UK was constrained for a few months. Belgium, for example, had virtually no iPhone 3Gs for the country (I mean, there are at least 3 major cities/metropolitan areas in Belgium) for most of July, Aug, Sep.

And, there are a few more countries where Apple could have easily offloaded a few million units of iPhone 3Gs. Korea, Malaysia, Indonesia, some Middle East countries... (The middle to upper class is significant).

Also, China.

I'm not criticising Apple here, just pointing out the world still hungrily awaits more iPhone 3Gs *officially launched* in their countries.

The opposite. Units are considered sold when it's shipped to a carrier. Yet, sales at Apple stores aren't recognized until the end-user purchases it.

It works just how you would think. Apple sells directly to end-users and to 3rd-parties. In both cases, Apple gets rid of iPhones to somebody. Thus, it's a sale.

Anybody put a number on how much Apple has in its own channel inventory on average? At any one day if you had 100 iPhone 3Gs per store on average, x 300 = 30,000 iPhone 3Gs in the channel at any one day? I know, very rough numbers here... Just curious.

Something the analysts may highlight, is that the risk of carrying a millions of phones in inventory each month appears to be borne by the telco resellers. Spread out globally. Pretty smart of Apple, really. One could almost say just the right move and just the right launch (July, Aug, first half of Sep) before global economic fears really hit everyone.

Here's an idea: it was the Olympics that was the "line in the sand", almost, psychologically. After the Olympics, humanity sat back, said, "Okay, yeah, that was cool, now... hmm... the economy OMFG!!!"

The opposite. Units are considered sold when it's shipped to a carrier. Yet, sales at Apple stores aren't recognized until the end-user purchases it.

It works just how you would think. Apple sells directly to end-users and to 3rd-parties. In both cases, Apple gets rid of iPhones to somebody. Thus, it's a sale.

If this interpretation is true, the conclusion from the article is that Apple retail stores do not have any inventory at all and all of the 2 million inventory iPhones lie in the backroom of all iPhone distribution points that *are not Apple Stores'.

So either Apple does not include its own Apple Stores with their inventory number or the graphic and numbers in the article are wrong in subtracting the whole 2 million or the article is assuming that Apple Store stock of iPhones (also including the units in transit from the factory to an Apple Store) is negligible (which it does not state explicitly).

(All this apart from my historic impression that Apple always told numbers of units sold/shipped to customers (other than Microsoft which counts Zunes/Xboxes as shipped to retail))

Anybody put a number on how much Apple has in its own channel inventory on average? At any one day if you had 100 iPhone 3Gs per store on average, x 300 = 30,000 iPhone 3Gs in the channel at any one day? I know, very rough numbers here... Just curious.

Something the analysts may highlight, is that the risk of carrying a millions of phones in inventory each month appears to be borne by the telco resellers. Spread out globally. Pretty smart of Apple, really. One could almost say just the right move and just the right launch (July, Aug, first half of Sep) before global economic fears really hit everyone.
"

I have ask around to my contacts in the channel, It's hard to say how many units are being stocked at each POS because Apple has had to catch up to demand. AT&T didn't have on-hand inventory until end of August, many international stores didn't get phones until September, after both ran out of stock the firs day/weekend. Apple hoarded all the shipments to sell in its store until production ramped up enough to where it could start replenishing channel inventory.

I had expected that channel fill to boost sales because it was pretty much vapor for most of the quarter. So, the 2M is probably a good number to have in the channel ~65 units / POS, may be a little light considering the holiday season is coming,normally that might be several weeks of supply, could turn into several days from holiday demand. Thus, shortages could erupt.

If this interpretation is true, the conclusion from the article is that Apple retail stores do not have any inventory at all and all of the 2 million inventory iPhones lie in the backroom of all iPhone distribution points that *are not Apple Stores'.

So either Apple does not include its own Apple Stores with their inventory number or the graphic and numbers in the article are wrong in subtracting the whole 2 million or the article is assuming that Apple Store stock of iPhones (also including the units in transit from the factory to an Apple Store) is negligible (which it does not state explicitly).

(All this apart from my historic impression that Apple always told numbers of units sold/shipped to customers (other than Microsoft which counts Zunes/Xboxes as shipped to retail))

Well, Apple's logistics are pretty tight, they don't need to carry large amounts of inventory, I saw phones in Apple stores that were manufactured earlier that week in China. This was right after the 8GB full scale shortage (End of Sep). So Apple's inventory is probably relatively small since it only has to manage 200 U.S stores, where by BBY is 1,000 AT&T in more than 2,000, and Vodaphone, and Orange, God knows. The carriers will hold bulk inventory at their distribution channels which then serves the 30,000+ POS.

I will have to get clarification, but I think it's negligible like you said for Apple (Maybe 5%) relative to the retail partners inventory. So, What I would add to the article is that, international sales is much higher because that 2,000,000 is mostly international.

But, remember, by the time of the conference call, 3 weeks after the quarter, Apple had sold at least 700K phones since it surpassed it's goal of 10M in CY08. I think it hit that mark probably the second week of Oct.

OK, so I'm curious for a clarification -- when Apple states that they have 2 million phones in the channel, what percentage (if any) of these are on the shelves in Apple stores, and therefore not considered sold, and what percentage are shipped to AT&T and other carriers. If the apple shelves are a significant portion of the channel, then they sold more than the article is estimating, but if Apple retail stores are not part of the channel, then they have...

OK, so I'm curious for a clarification -- when Apple states that they have 2 million phones in the channel, what percentage (if any) of these are on the shelves in Apple stores, and therefore not considered sold, and what percentage are shipped to AT&T and other carriers. If the apple shelves are a significant portion of the channel, then they sold more than the article is estimating, but if Apple retail stores are not part of the channel, then they have...

OK, so I'm curious for a clarification -- when Apple states that they have 2 million phones in the channel, what percentage (if any) of these are on the shelves in Apple stores, and therefore not considered sold, and what percentage are shipped to AT&T and other carriers. If the apple shelves are a significant portion of the channel, then they sold more than the article is estimating, but if Apple retail stores are not part of the channel, then they have...

I'm not sure what that would mean.

any ideas?

By definition, "channel" would include retail, it includes everything. But, I am pretty certain when Apple refers to the channel, they are talking about resellers. Apple would not be a significant portion of the channel. Apple may have 50K units in it's retail supply chain, compared to the 2M number for resellers.

Apple only has just over 200 stores in the US and those only keep a couple days inventory on hand. There are no "shelves" at Apple stores, and when there is a big sale, they have to section off have the store to pile inventory since the stock rooms aren't that big. Apple turns its whole inventory in about 7 days, That would be from manufacturer to consumer (or channel partner) It takes Best Buy 2 months to turn its inventory over, which is typical for a retailer.

I can assure you that 2M channel inventory is predominately international sales.

By definition, "channel" would include retail, it includes everything. But, I am pretty certain when Apple refers to the channel, they are talking about resellers. Apple would not be a significant portion of the channel. Apple may have 50K units in it's retail supply chain, compared to the 2M number for resellers.

You have to look at the context of when and where the question was asked.

Apple executives were talking about the 2 million iphones in the channel in the context of the 6.9 million iphones. Apple can only recognize revenue from the 6.9 million iphones if they are shipped to carriers or sold in Apple stores. Apple cannot recognize revenue if the iphones are just sitting on the Apple store shelves.

Therefore, "channel" in this context explicitly excludes Apple's own inventory in their Apple store shelves.

You have to look at the context of when and where the question was asked.

Apple executives were talking about the 2 million iphones in the channel in the context of the 6.9 million iphones. Apple can only recognize revenue from the 6.9 million iphones if they are shipped to carriers or sold in Apple stores. Apple cannot recognize revenue if the iphones are just sitting on the Apple store shelves.

Therefore, "channel" in this context explicitly excludes Apple's own inventory in their Apple store shelves.

That's exactly what I said, When management spoke of the channel, they are referring to their 3rd party resellers, and not their stores. The 2M was from "sell-in" thus sell-thru was only 4.9M.
I was also trying to make the point that Apple's shelves are so small, that it wouldn't even be material compared to resellers, thus why I said management doesn't include its stores in the realm of channel inventory because Apple keeps very little on hand, sells-thru in a week.

There are several steps Apple could do to increase sales without cutting prices:
1. As component prices come down, the company could add value and keep the margin, cost and price structure the same. Adding more memory as prices collapse with this recession... 32GB would be OK with me; increase the resolution of the camera and may be add LED flash
2. Improve GPS to make is as good as Garmin... that would add huge value.
3. Add TV and other features like electronic payment that are popular in international market.
4. Sell unlocked units at the market price in places like Hong Kong, China, etc. This will open a huge market to people would do not want to be tied to plan and like to change the SIM card avoid hi roaming fees.
5. Given the economies of scale, the company could come up with a CDMA phone for the Chinese, Japanese, Korean and even the US market once ATT contract expires. Apple needs to be transmission technology agnostic. Verizon has a huge CDMA customer base... a lot of biz customers.

$99? Nah, let the Nokia chase the bottom of the barrel.

1. Not a bad idea. Flash would require a new device, and better image processing software.
2. Not as simple as that. The SIRFStar III is what Garmin uses and Apple would have to license this chipset. A-GPS with an adequate chipset is a viable option. Nokia went this route and combined it with good GPS software (Navteq). This is a winning solution and currently better than anything Apple can come up with.
3. Will require a new device once again. Electronic payments are generally software based solutions rather than hardware so this point is moot.
4. Has made sense from the very beginning but Apple seems to think that outside the US there are no other biz models.
5. GSM is the standard pure and simple. CDMA is good but with WCDMA and GPS why bother making a special CDMA phone?

Nokia actually owns the bottom of the barrel, the middle and pretty much the top. Considering Nokia has not released anything yet, you might want to hold in your smugness just a bit. One thing to consider is that not everyone wants an iPhone. There are some people that simply are not in love with it, not to mention the way Apple and its eco system work, people are somewhat turned off. These are customers (probably in the millions) that Apple will never reach.

There are several steps Apple could do to increase sales without cutting prices:
1. As component prices come down, the company could add value and keep the margin, cost and price structure the same. Adding more memory as prices collapse with this recession... 32GB would be OK with me; increase the resolution of the camera and may be add LED flash
2. Improve GPS to make is as good as Garmin... that would add huge value.
3. Add TV and other features like electronic payment that are popular in international market.
4. Sell unlocked units at the market price in places like Hong Kong, China, etc. This will open a huge market to people would do not want to be tied to plan and like to change the SIM card avoid hi roaming fees.
5. Given the economies of scale, the company could come up with a CDMA phone for the Chinese, Japanese, Korean and even the US market once ATT contract expires. Apple needs to be transmission technology agnostic. Verizon has a huge CDMA customer base... a lot of biz customers.

$99? Nah, let the Nokia chase the bottom of the barrel.

1. As the memory price comes down, Apple will add storage. We all know that. More resolution with the same fixed focus lens is useless. To get higher definition, you need sharper lens and auto-focus, mean the iPhone has to be thicker. LED flash is useless if the subject is farther than a couple of feet.
2. Better GPS means bulkier device and uses more battery.
3. Again, bulkier device and uses more power.
4. Agree with this. There should be unlocked iPhone for $600.
5. Agree.

$99 with two year contract is not bottom of the barrel. Cheap Nokia phones are selling for $99 UNLOCKED.

Apple sold the 1st Generation IPhone for $400 after the price drop. The 2nd Generation IPhone is unlikely to be much more expensive to manufacture today even with the 3G radio since the price of a lot components have fallen dramatically. An unlocked entry level IPhone at $400 would make sense for unrestricted markets.

In an open market like Hong-Kong, these phones would percolate quickly into Mainland China... and sell millions. Obviously, it could spread into a huge global grey market... including the US.

Regardless, I do think the slowing global economy will energize AAPL to become much more aggressive in marketing. The way I see it, the music and the computer market will get worse than expected. I suspect the K-12 market to be the worst hit. That leaves the IPhone as the main growth engine... and Apple can not afford to take advantage of this phone.

There are several steps Apple could do to increase sales without cutting prices:

4. Sell unlocked units at the market price in places like Hong Kong, China, etc. This will open a huge market to people would do not want to be tied to plan and like to change the SIM card avoid hi roaming fees.
.

Apple now sells unlocked phones in hong-kong. $700/$800. I am curious how many are selling and if they are being channeled into the mainland. Sales potential could be pretty big.

"To be precise, at the end of the quarter, I can tell you that we had about 2 million iPhones in total channel inventory across all of the 51 countries and we feel that these inventory [levels are] about right," he said.

Thi from the mobistar website this morening
"We shall keep you informed
as soon as the iPhone3G is available again."